Co-lending for MSMEs: Chennai-based non-banking financial company Dvara KGFS and private sector lender HDFC Bank have entered a co-lending partnership to provide credit to micro enterprises operating primarily in the unorganized sector facing challenges in accessing formal credit sources. The tie-up aligns with the NBFC’s this year’s Annual Operating Plan (AOP) looking to enable credit for micro businesses across the 10 states that it serves.
LVLN Murty, MD, and CEO of Dvara KGFS said the co-lending partnership with HDFC Bank will enhance the company’s capabilities in empowering micro businesses operating in rural areas.
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Dvara KGFS had launched its enterprise loan vertical in 2020, focusing on three value chains viz., grocery, dairy, and agri. So far, “the company has assisted numerous beneficiaries with working capital and business growth loans, improving their livelihood generation capabilities and facilitating their inclusion in the Indian economy,” said a company statement.
“At HDFC Bank, our aim has always been to provide ease in accessing credit and finance. In this pursuit, we are happy to partner with Dvara KGFS which will serve to increase the credit flow to the underpenetrated areas and encourage the beneficiaries to become self-reliant,” said K. Venkatesh, Executive Vice President and Business Head, Sustainable Livelihood Initiative, HDFC Bank.
Dvara KGFS will leverage its rural loan origination capabilities and understanding of rural markets combined with HDFC Bank’s brand, financial strength, and strong risk framework to reach out to micro enterprises.
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The co-lending model (CLM) in India particularly for priority sector lending (PSL) has been a promising development to address the credit gap in the MSME sector. It enables banks and NBFCs to collaborate in providing joint loans to end borrowers. Through such partnerships, banks can create a scalable PSL-compliant retail portfolio and offer loans to MSMEs.
Meanwhile, NBFCs can leverage their distribution networks in regions with limited banking presence and cater to creditworthy customer segments that struggle to access formal banking credit. They possess expertise in evaluating MSMEs based on their assessed income and in-depth understanding of the local ecosystem. Moreover, they demonstrate cost-efficiency in collections and maintain low delinquency rates.